23rd September 2019

Labour policy on land ownership addresses affordability

An interesting policy document published recently by the Labour party looks to radical reform of land ownership to address the housing crisis.

Among an eyebrow-raising set of proposals to reform planning, development and ownership, is the argument that a yawning affordability gap is being stoked by rising land values.

It’s hard to argue with the basic premise: the value of land developed for dwellings rose by over 500% in the decade since 1995. It has always been an argument of the major housebuilders that the rising cost of new homes is largely explained by rising land costs.

There is a supply and demand issue at work here, of course. There will always be a finite amount of land likely to be given planning permission and naturally, there is a massive and immediate rise in the value of that land as soon as planning permission is considered likely. Developers are then in a competitive market that drives cost only in one direction.

As developers pay ever higher prices for land, so their enthusiasm for investing in infrastructure, community amenities or even higher quality housing diminishes.

The ultimate aim of the housing policy set out in this document is to stabilise house prices (allowing incomes to gradually catch up and erode the affordability problem) and there is an argument that this could be achieved, at least in part, by controlling the cost of land.

The authors of the document point out that the only beneficiaries of rising land prices are the landowners.  

They also point out that even when land is acquired under compulsory purchase orders (CPOs) the landowner will be paid in relation to potential market value, including a percentage of ‘hope value’. Ie landowners are compensated not on the basis of what the land is worth at the time, but on the basis of what it one day might be worth if it acquires residential planning permission.

This document recommends that compulsory purchase orders should pay only the current market value of the land. Authors suggest that simply by being an option this will constrain the cost of land. They refer to the historic role of CPOs in ensuring an adequate supply of affordable housing.

An analysis by Daniel Bentley for Civitas estimates that such as change could reduce the cost of building affordable housing by 50% on greenfield sites in the South East.

Reducing the value of land would hit public sector landowners too, of course. Local authorities can, and do, sell land in order to fill budget deficits. This policy document suggests baldly that the sale of public sector land should end, with local authorities and other Government bodies using the land they own to deliver high quality affordable housing and meeting other social need.

This approach to land ownership and value is just one section of a far-reaching set of policy proposals, published by the Labour party, and provides much food for thought.  

Given the current unpredictable political situation, the entire housebuilding industry needs to be aware of how its business models may be set for a radical shake-up.